Retail and other business establishments that serve a large number of customers generally have a problem obtaining transactional information about their customers, such as for identifying new customers and determining transactional patterns for repeat customers (such as transactional frequency and dollar volume).
For those stores that experience a high volume of check transactions, an immediate customer information problem is determining whether to authorize a check transaction in the typical situation where the sales clerk does not personally know the purchaser. Beyond this immediate problem of check verification, these stores have a broader need for gathering transactional information that could be used in developing customer profiles useful in targeting advertising, marketing and promotions.
For example, a typical grocery store does a high transactional volume with checks comprising a significant percentage of the total transactions (typically as much as 85%). These businesses strive for maximum efficiency in completing transactions at the checkout counter, which results in a minimum of contact between the customer and the sales clerk. In this sales environment, neither clerks nor store managers typically develop any significant personal relationship with an individual customer.
Since check transactions account for such a significant percentage of a grocery store's business, these stores naturally make an effort to minimize the number of bad checks that will be returned. Typically, the store will require an additional piece of identification, such as a driver's license and/or a major credit card. However, this requirement for additional identification reduces the efficiency of the checkout process, and inconveniences the significant majority of check transaction customers who do not write bad checks—typically, a grocery store's bad check experience will be approximately 2% of its check transactions.
Thus, check verification presents a store with problems in customer relations and risk management. A store naturally seeks to improve customer relations with the great majority of customers who do not present check transaction problems by efficiently and quickly authorizing check transactions. However, the store must guard against the financial risks from customers who do write bad checks, either as part of a concerted bad check scheme or as a result of less larcenous conduct that may range from simple bookkeeping mistakes to overly aggressive check floating. In the former case, bad check risk is greatly dependent upon abnormal check transaction activity over a given interval. In the latter cases, the bad check risk is greatly dependent upon check transaction history (total check transaction frequency and dollar volume at a store).
The check transaction risk management problem has two principal aspects—the risk that a person will write a bad check and the risk that a bad check cannot be recovered. Again, both of these risk factors are greatly dependent upon a customer's historical check transaction activity. As the total number of check transactions by a customer at a particular store increases, both the risk that the customer will write a bad check decreases, and more significantly, the risk that store will not be able to recover on a bad check decreases.
For example, a customer with fewer than 200-300 check transactions at a store presents a relatively high risk in terms of recovery on a bad check, while a customer with more than 600-700 check transactions presents a minimal risk. Thus, a store practicing risk management should put substantially more restrictions in terms of check transaction frequency and total dollar volume over given intervals in the former case than in the latter.
These risk management problems are multiplied in the case of multiple store businesses, particularly in the case of concerted bad check cashing schemes. In that case, the typical pattern is to move from store to store within a relatively short period of time.
Beyond these check verification and risk management problems, grocery stores have a broader problem in accumulating customer information because of the emphasis on minimizing the amount of time required for a sales transaction, and the attendant impersonality of the customer relationship. Thus, it is extremely difficult to develop any meaningful customer profiles, or to identify customer groups such as regular customers and new customers who might become regular customers. If a store could accumulate more detailed customer information, customer profiles could be developed and used for targeted advertising, marketing and promotional programs.
Accordingly, a need exists for a transaction processing system for individual stores (in both single and multiple store environments) that facilitates check transactions by improving the efficiency of the check verification process, and that maintains a local customer database containing transactional information about the store's customers useful for check verification risk management, and for other customer relations purposes such as identifying new customers and profiling regular customers.
Check or credit verification systems are commonly used today to verify check/credit transactions. Typically, these systems include a negative-status database of individuals for whom check or credit transactions will not be authorized (for example, because of an outstanding bad check). In response to requests for check transaction verification, these systems indicate that the customer's status is either positive (transaction anthorized) or negative (transaction not authorized).
U.S. Pat. Nos. RE.30,579, RE.30,580, and RE.30,821 (Goldman) disclose a system for commercial retail establishments in which customer records are identified by arbitrary identification information such as a driver's license number and contain some customer status and transactional data (such as bad check history and frequency of checking transactions in a given period). For each check transaction, the clerk enters into a transaction terminal the customer's arbitrary identification. Such systems have not been commercially practical, because store customers dislike having to identify themselves, particularly when they have been long-time customers of the store.
In the systems disclosed by Goldman, if the customer database contains a corresponding customer record, a customer status indication (positive or negative) is returned to the clerk. If the customer database does not contain a corresponding customer record, the system creates a new record, and indicates first-time/interim status for the customer. The database is regularly updated by changing customer status to reflect check transaction experience or the sufficient passage of time for check clearance to allow transfers from first-time/interim status to positive status. Such first-time/interim status as taught by Goldman is dangerous for the store owner, as a customer can gain access to a positive indication level, thus enabling the cashing of many checks in a short time period, by the clearing of only a single check.
Existing check transaction processing systems are disadvantageous for high-volume check transaction operations. In particular, the Goldman patents do not disclose a practical system for businesses to efficiently verify check transactions, while developing a localized customer database for each store that may be used by the store to develop customer profiles useful for marketing and other customer relations purposes. The Goldman system, and others, are based on using some form of identification with the customer's check, a procedure that both slows the check transaction process and inconveniences the large majority of customers who will not present a bad check. Moreover, such systems as disclosed in the Goldman patent do not enable sufficient control over a customer's check transaction frequency and dollar volume, and thus subject the store owner to substantial financial risk.
Many such systems require connecting a point-of-sale terminal through telephone lines to a remote transaction processing system, thereby increasing not only the cost of operating the systems, but also increasing the time for providing check verification. Also, existing systems typically do not focus on maintaining a local customer database useful not only for check transaction processing, but also for identifying new customers and developing customer profiles for regular customers.